Management of Public Debt-

Legal and institutional set up

Presented by
Tarun Das
Economic Adviser, Ministry of Finance, India and
Resource Person for UNITAR

UNITAR Lecture-2 External Debt - Tarun Das 1

 1-A Institutional set up for
sovereign debt management
Country Under Min of Located Located
Finance or in the Elsewhere
Treasury Central Bank
1.Australia 
2.Austria 
3.Belgium 
4.Canada 
5.Denmark 
6.Finland 
7.France 
8Germany 
9.Greece 
10.Ireland 
UNITAR Lecture-2 External Debt - Tarun Das 2
 1-B Institutional set up for
sovereign debt management
Country Under Min of Located Located
Finance or in the Elsewhere
Treasury Central Bank
11. Italy 
12. Japan 
13. Netherlands 
14. New Zealand 
15. Potugal 
16. Spain 
17. Sweden 
18. Swizerland 
19. United kingdom 
20. United States 
UNITAR Lecture-2 External Debt - Tarun Das 3
 1-C Institutional set up for
sovereign debt management
Country Under Min of Located Located
Finance or in the Elsewhere
Treasury Central Bank
21. Argentina 
22. Brazil 
23. China 
24. Colombia 
25. Hungary 
26. India  
27. Korea 
28. Mexica 
29. Thailand 
30. Turkey 

UNITAR Lecture-2 External Debt - Tarun Das 4

 2-A Institutional arrangement
for annual debt borrowing
Country Limit on Ceiling on Institutional
annuaL in the arrangement
borrowing Central Bank
1. Belgium Yes No MOF
2. Canada Yes No MOF
3. Finland Yes No MOF
4. France Yes No MOF
5. Germany Yes No MOF
6. Greece Yes No MOF
7. Hungary Yes No MOF
8. India Yes No MOF
9. Italy Yes No MOF
10. Mexico Yes No MOF

UNITAR Lecture-2 External Debt - Tarun Das 5

 2-B Institutional arrangement
for annual debt borrowing
Country Limit on Ceiling on Institutional
annuaL in the arrangement
borrowing Central Bank
11. Morocco Yes No MOF
12. New Zealand Yes No MOF
13. USA No Yes MOF
14. UK Yes No MOF
15. Austria Yes No Autonomous
16. Ireland Yes No Autonomous
17. Portugal Yes No Autonomous
18. Sweden Yes No Autonomous
19. Denmark No Yes Cent.Bank

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 3-A Legal framework for debt office
Country Limit on domestic debt Decides new
limits
1.Belgium Limit on borrow.cost Parliament
2.Canada Yes,Borrowing Parliament
Authority Act
3.Germany Yes, by Budget Law Parliament
4.Greece No, except for T-Bills
5.India Yes, by Budget Law Parliament
6.Japan Yes, by Budget Law Parliament
7.Mexico Yes by Federal Law Congress
UNITAR Lecture-2 External Debt - Tarun Das 7
 3-B Legal framework for debt office

Country Limit on domestic Decides new

debt limits
8.Nether- Implicit limit Parliament
lands
9. New No legal limit MOF
Zealand
10.Swit- No legal limit Parliament
zerland
11.Turkey Only for govt.bonds Parliament

12.UK
UNITAR Lecture-2
Yes External Debt - Tarun Das
- 8
 3-C Legal framework for debt office

Country Limit on domestic debt Decides new

limits
13.Australia Yes DMO
14.Austria Yes by Financial Law Parliament

15.Ireland No legal limit -

16.Sweden Only for foreign exch -

17.Denmark Yes, on outstanding

debt Parliament
UNITAR Lecture-2 External Debt - Tarun Das 9
4-A Autonomy of Debt Office
Country Degree of autonomy Under
1.Belgium Not independent MOF
2.Canada - MOF
3.Germany Independent MOF
4.Greece - MOF
5.Japan Not independent MOF
6.Mexico Independent MOF
7.Netherlands Independent MOF
8.New Zealand Not independent MOF
UNITAR Lecture-2 External Debt - Tarun Das 10
4-B Autonomy of Debt Office
Country Degree of autonomy Under
9.Switzerland Not independent MOF
10.Turkey - MOF
11.UK Independent MOF
12.Australia - MOF
13.Austria Not independent MOF
14.Ireland Independent MOF
15.Sweden Independent MOF
16.Denmark Not independent MOF
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 5-A Institutional set-up for foreign currency debt
Country Central govt Local govt SOEs
China MOF Not allowed SOEs
India MOF Not allowed SOEs
Indonesia MOF Not allowed
Korea MOF Local govt SOEs
Singapore None
Thailand DMO/MOF None MOF
Argentina MOF Local govt
Chile MOF Not allowed MOF
Colombia
UNITAR Lecture-2 MOFExternal Debt - Tarun
Local Das govt MOF 12
 5-B Institutional set-up for foreign currency debt
Country Central govt Local govt SOEs
Mexico MOF Local govt MOF
Peru DMO/MOF DMO/MOF MOF
Venezuela MOF Not allowed Not allowed
Czech Rep None MOF SOEs
Hungary DMO/MOF None
Poland MOF Local govt
Russia MOF Local govt
Israel MOF Local govt SOEs
South Africa
UNITAR Lecture-2 DMO/MOF
External Debt Not
- Tarun Allowed
Das MOF 13
 6 International best practices
1 New Zealand - The New Zealand Debt
Management Office (NZDMO
2 Australia- The Australian Office of
Financial Management (AOFM)
3 Ireland- The National Treasury
Management Agency (NTMA)
4 The Maastricht Treaty of the European
Union
5 Fund-Bank Conditionality
6 Heavily Indebted Poor Country (HIPC)
Initiatives
UNITAR Lecture-2 External Debt - Tarun Das 14
 7.1 Debt management objectives
and priorities (% of respondents)

(a) Minimise financial costs and risks- 38%

(b) Funding management- 26%
© Management of debt- 15%
(d)Development of financial markets-9%
(e) Others 13%

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 7.2. Establishment of benchmarks
for risk management 
(% of respondents)
1.Countries establishing guidelines for risk
management 45%
2. Countries establishing benchmarks for
foreign currency debt 24%
3.Countries establishing benchmarks for
portfolio performance 21%
4. Countries establishing benchmarks for
domestic currency debt 13%
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 7.3 Risk management
guidelines
(a)  Limit currency risk
35%
(b)  Avoid excessive short-term debt / to
smooth maturity profile 29%
(c)  Debt in least volatile currency 24%
(d)  Limit on debt with floating interest
rate 18%
(e)      Debt matching reserves 12%
(f)        Others 18%

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7.4. Analytical techniques for
undertaking risk analysis (%)
(a)      Not using any analytical
techniques – 32%
(b) Value-at-Risk (VAR)/ Cost-at-
Risk (CAR) - 23%
(c)      Debt sustainability indicators-
16%
(d) Others – 29%
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 7.5 Constraints for
establishing benchmarks
5.
(a) Lack of debt management policy 23%
(b) Lack of debt management 23%
expertise
(c)No access to financial markets 13%
(d) Lack of debt monitoring 10%
(e) Difficult economic environment 10%
(f) Others 21%

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 7.6 Sovereign Debt
Management
6. Use of derivatives to hedge currency and
interest rate risks
( Currency swaps 31%
( Interest rate swaps 24%
( Use of exchange commodity futures and options
7%
7. Constraints for using derivatives
( Lack of technical knowledge 71%
( Undeveloped financial markets 17%
( Legal constraints 12%
UNITAR Lecture-2 External Debt - Tarun Das 20
 7.8 Sovereign Debt
Management
8. Institutions managing the
foreign currency debt
( Ministry of Finance 51%
( Jointly by the Ministry of Finance
and the Central Bank 30%
( Central Bank 11%
( Independent Debt Office 95
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 7.9 Sovereign Debt
Management
9. Coordination of both public and
public debt
( Ministry of Finance 35
( Jointly by the Ministry of Finance (MOF)
and the Central Bank (CB) 24
( Partly by MOF and partly and
independently by the CB 24
( Debt Management Committee 18
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 7.10. Highest authority for
approval of debt
Authority Dom.debt Ext.debt
( Finance minister/ Governor of the Central
Bank 72% 49%
( Parliament 6% 21%
( Interministerial board 8% 12%
( President/ Prime Minister 6% 9%
( DG of independent authority 8% 9%

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 7.11 Average time taken for
approval of external debt

( One day or less 10%

( Less than a week 13%
( More than a week, but less than three
months 65%
( More than three months 13%

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7. 12. Management of
Contingent liabilities
( Subnational entities are allowed to raise their
own funding abroad 69%
( Central govt provides explicit guarantees for
IBRD loans 68%
( Central govt bears fully the exchange rate risk
for IBRD loans 41%
( Central govt shares partially the exchange
rate risk 11%

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 7.13. Efficiency of Middle
Office (% of respondent)

( Use of Market Information system (MIS)

76%
( Access to internet 91%
( No Middle Office Unit 43%
( Distinct Middle Office Unit 43%
( Middle Office placed under the direction of
the Front Office 3%
UNITAR Lecture-2 External Debt - Tarun Das 26
7.14. Main constraints for
external debt management

( Lack of proper organisational structure 31%

( Macroeconomic risk 14%
( Lack of technical staff in the middle office
12%
( Lack of technical staff in the back office 6%
( Lack of legal framework 6%
( Limited local debt market 6%
UNITAR Lecture-2 External Debt - Tarun Das 27
 Thank you
Have a Good Day

UNITAR Lecture-2 External Debt - Tarun Das 28